Gold retreats below $5,000 as markets await Fed rate decision

Gold pulls back from recent highs amid geopolitical tension

In early Wednesday Asian trading, spot gold declined 0.4% to $4,987.09 an ounce by 01:18 ET (05:18 GMT), while gold futures also slipped 0.4% to $4,990.44 an ounce. The metal had briefly risen back above the $5,000 an ounce level but reversed course as markets reassessed the risks from both monetary policy and the ongoing conflict involving the U.S., Israel, and Iran.

Despite a worsening conflict in the Middle East, gold struggled to remain above $5,000 an ounce this week. Continued attacks by the U.S. and Israel on Iran, and retaliatory action by the Islamic republic, have not been sufficient to sustain recent gains. The war showed few signs of easing after an Israeli air strike killed Iran security chief Ali Larijani earlier in the week.

Gold remains up on the year but is trading well below its late-January record high near $5,600 an ounce, leaving the metal nursing a sharp pullback from those peak levels.

Other precious metals also weakened. Spot silver fell 0.3% to $79.0345 an ounce, while spot platinum declined 0.6% to $2,116.40 an ounce.

Inflation and interest rate outlook weigh on precious metals

Oil prices stayed above $100 a barrel amid ongoing worries over supply disruptions linked to the conflict and interruptions to shipping through the Strait of Hormuz. Markets are increasingly focused on the potential inflationary impact of higher energy costs, with oil prices trading near four-year highs.

Energy-driven inflation risks are shaping expectations for central bank policy. The Reserve Bank of Australia raised interest rates on Tuesday and warned of inflationary pressures stemming from the conflict. A series of major central bank meetings is scheduled in the coming days, including the Federal Reserve, Bank of Japan, European Central Bank, Swiss National Bank, and Bank of England.

The Federal Reserve is widely expected to leave interest rates unchanged later on Wednesday. Market attention is concentrated on whether the Fed anticipates an inflationary bump from the Iran-related conflict and how this might influence its interest rate outlook. According to CME Fedwatch, markets are largely pricing out expectations of any Federal Reserve rate cuts until at least September.

The prospect of interest rates remaining higher for longer is considered negative for gold, as it raises the opportunity cost of holding non-yielding assets relative to interest-bearing instruments.

FAQ

What were gold prices in Asian trade on Wednesday?
Spot gold traded at $4,987.09 an ounce, down 0.4%, while gold futures were at $4,990.44 an ounce, also down 0.4%, by 01:18 ET (05:18 GMT).

Why are markets concerned about inflation?
Markets are concerned that the conflict involving the U.S., Israel, and Iran, combined with oil prices above $100 a barrel and disruptions through the Strait of Hormuz, could drive energy-fueled inflation.

What is the Federal Reserve expected to do at its meeting?
The Federal Reserve is widely expected to leave interest rates unchanged, with focus on its assessment of inflation risks from the Iran conflict and the implications for the future path of interest rates.

How are other precious metals performing?
Spot silver fell 0.3% to $79.0345 an ounce, while spot platinum declined 0.6% to $2,116.40 an ounce in the same trading session.